Avoiding the vague and the onerous: New guidance for community-investor contracts

Sam Szoke-Burke

Wednesday, September 5, 2018

Would you sign a lease that gave your landlord “sole discretion” in deciding on how any disputes you have with them would be resolved? Would you spend months or years negotiating a contract with a business partner only to have it include a clause saying it is not legally enforceable? Would you let a private company use your family’s farmland in exchange for a promise to build you roads or install wells only if it is “necessary for the implementation” of their project?

These are the sorts of alarming features that my colleagues and I have seen in agreements from around the world between communities and investors seeking to carry out agribusiness, forestry, mining, or oil and gas extraction projects on community lands. They were also one factor behind the Columbia Center on Sustainable Investment (CCSI) and Namati’s decision to develop two new guides to help communities understand their rights and avoid exploitative agreements.

Problematic features may be included because a contract is negotiated in the context of immense power imbalances, corruption, a lack of widespread community involvement, and/or in the absence of technical support for the community. Sadly, this often leads to agreements that enable the investor to carry out their project and earn profits without the community securing much—if anything—in return. In fact, the community may end up worse off than they were before, for instance, with their waters irreversibly polluted or access to their farms and grazing lands blocked.

Many agreements include clauses that are not clear enough to be enforceable.

One of the most common problems with community-investor agreements is that they do not provide sufficient detail to hold the company to their commitments.

For example, an agreement may promise that the community “will have [a] market place” or a “church or prayer hall” without providing details about dimensions or who will be responsible for its maintenance. Other agreements vaguely commit the company “to use reasonable endeavors to run the project in an environmentally friendly manner” without specifying what environmental protection standards apply, which can lead to disputes about whether or not the company has adequately protected the environment from its operations.

Some agreements also leave open the possibility of the company using community lands and resources in unforeseen ways. An agreement that allows an agribusiness to use lands to grow certain crops or “for any other purpose,” for instance, could allow the company to simply strip the land of trees, store toxic waste, or conduct a range of other harmful activities that were not contemplated by the community.

Many agreements explicitly say they are not enforceable. Companies often negotiate a provisional (usually non-binding) Memorandum of Understanding with a community on the understanding that a more detailed, enforceable contract will be negotiated at a later date. This subsequent contract might never materialize, leaving the community with few or no enforceable contractual rights—despite the fact that the company is already using their land. In other cases, the contract is signed but expressly says that it “does not create any legally enforceable rights” or that the community cannot pursue litigation for any disputes arising from the agreement.

Unenforceable contracts are especially concerning in situations where the laws of the country inadequately regulate private industry or protect human rights such as the right to water or safe working conditions. In the absence of strong laws and/or an enforceable contract, the community is left to rely on the good will of the company. Such good will may be there one moment but gone the next. Or never there at all.[1]

Some agreements have gaps on critical issues such as local employment.

Communities may welcome investors on their lands because of the promise of local job creation. Yet some agreements do not have requirements or quotas for jobs to be undertaken by community members. Other agreements require the company to employ nationals of the country but not necessarily local community members. Community members may therefore be upset to discover that they are unable to get a job with the company, yet still have to bear the project’s negative environmental, social, and human rights impacts.

Some agreements contain onerous provisions that demand too much of host communities.

In addition to committing too little to the community, investors may ask for too much from them. One agreement we came across between a community in Liberia and a palm oil company requires the community’s representatives to join the company in opposing any litigation by a community member who feels their complaint was not properly resolved by the company’s grievance resolution process. This has the potential to destroy community unity and to cast individuals with legitimate grievances as “outsiders.” Another, from South Sudan, requires community members to “contribute two days unpaid work” each year for five years to repair a public road, including clearing nearby vegetation and digging ditches.

Guidance for community advocates

Communities do not have to resign themselves to accepting whatever terms are offered by an investor. Two new guides developed by CCSI and Namati can help communities, working in partnership with community paralegals, lawyers, or other advisors, to avoid disadvantageous or burdensome agreements.

Guide 1 helps communities Preparing in Advance for Potential Investors. It explains what can be done before an investor arrives and what to do after the community has been approached by an investor, including ensuring the community is meaningfully consulted and deciding whether or not to negotiate with the investor.

Guide 2 focuses on Negotiating Contracts with Investors, for those communities who have decided they want to engage with potential investors. It includes warnings on problematic contract wording, “red flag” clauses that should be avoided, example clauses to give a sense of existing practices from around the world, and alerts for issues which the community should seek advice or deliberate internally.

Guide 2 also explains the range of issues that may need to be addressed in a community-investor contract, including benefit sharing and dispute resolution clauses, and remedies for contract breaches.

As a supplement to these two guides, CCSI will soon launch Open Community Contracts, a repository of over 100 publicly available community-investor contracts with plain language summaries to help communities and their advisers learn about pitfalls and leading practices in agreement making from around the world.

As investors from across the globe continue to compete for increasingly scarce land and resources, local communities must be vigilant in protecting their rights and ensuring development takes place in an inclusive and sustainable manner. These tools can help communities to establish stronger contractual rights and more sustainably manage their lands and resources for generations to come.

Sam Szoke-Burke is a Legal Researcher at the Columbia Center on Sustainable Investment.

*All quotes are from existing contracts assessed by CCSI and partners. For more information, please get in touch at ccsi@law.columbia.edu